Yesterday, President Obama put forth a mandate to the automotive industry to reduce emissions and increase the MPG of the vehicles they produce. The mandate requires that the overall average of cars and light trucks produced reach at least 35 miles per gallon fuel economy by 2020.
The mandate requires a 22 percent drop in emissions by 2012, and a 30 percent drop by 2016. Some feel that the automakers should have "no major difficulty" in reaching the mandated efficiency goals based on the automotive manufacturers reports given to Congress on producing more fuel-efficient vehicles.
President Obama has requested the Transportation Department to develop guidelines by March of 2009, outlining the steps needed to reach the 35 MPG average fuel efficiency by 2020 in compliance with a law approved in December of 2007 by former President Bush. Bush's law on the CAFE (Corporate Average Fuel Economy) standard was never implemented however.
So what does all of this mean?
In the current market, the automotive manufacturers no longer have the upper hand. They have been resistant to the increase in fuel economy, sighting how expensive the increase in fuel economy will be for retooling and design efforts. They also sight the current low fuel costs as a reason that consumers will be resistant to purchasing the vehicles that they would produce with higher fuel economy standards. Enter the higher fuel tax ideas that are currently floating about. A a fuel tax hike that some claim, will add $2 to $3 to the price of a gallon of gasoline.
For the most part the automotive manufacturers are correct in the assumption that the vast majority of the American consumers will not fully embrace vehicles with higher MPG ratings unless they have a clear and direct reason to do so. With fuel prices relatively low at current, the average consumer will start to turn back to large vehicles with lower MPG ratings. Higher fuel prices would force consumers to buy more fuel efficient vehicles, and in large numbers. Using new fuel taxes to raise the fuel costs would also provide the added benefit of reducing budget deficits. But they would have to be careful how they implement this new tax idea. To much, to fast and they could end up with a tele-commuting society that drives only to the market. But if they roll out the new taxes over a period of time in small sums they might not be met with much resistance. Nine cents here and sixteen cents there is easier for the public to accept then going to the pumps tomorrow and having to pay a full dollar or two more than they would have yesterday. Phasing it in over a 24 to 36 month period might serve them best in the long run, though this will not send consumers in droves to purchase the new Fuel Efficient vehicles at the outset.
In addition to the fuel tax you would have to expect that the average cost of a more fuel efficient vehicle will be more than the average cost of a new vehicle at the current MPG estimates. Hybrid technology for example is not cheap, even in today's market. I would expect that we might see any where from a $1,000 to a $5,000 price increase over today's over priced cars and trucks. At this point the average consumer is going to have to see what is the lesser of the two evils. Keeping the 1992 lumina that is paid off and getting twenty odd miles to the gallon but paying $3.50 a gallon or buying the new "Insert clever name here" that gets 35 miles to the gallon but costs $32,000. My money is on the 92 Lumina since there is no payment involved other than maintenance.
So what other market drivers can be put into play to take away our 92 Lumina and make us think; "Buying that over priced piece of junk is a good idea after all"?
Enter the tax incentive and Gov. Arnold Schwarzenegger's request for a waiver under the Clean Air Act, allowing California to enforce strict limits on tailpipe emissions. Add in at least 14 other states who have already adopted the California standard and the other four states that are in the process of adopting those standards. Bye bye 92 Lumina. If they can't talk us out of our reluctance to take on new monthly payments it seems that they may be able to force us to take on a new monthly payment. And all of this while we are in a recession.